Islamic finance market underserves demand for sustainable impact

by FAYYADH JAAFAR / pic credit: islamicmarkets.com

NEARLY three out of four practitioners believe Islamic finance underserves economic, social and governance (ESG) demands, according to a study by IslamicMarkets.com last month.

Research conducted among 143 leading Islamic finance professionals working across banking, fintech and finance sectors also found that they expect dramatic growth in the number of investment funds combining ESG and Shariah compliance over the next two years.

The research was conducted by Maybank Islamic Bhd, the Islamic banking arm of Maybank Group, and IslamicMarkets.com, a leading platform that provides access to expert knowledge and financial opportunities, to support their upcoming forum entitled “Driving Sustainable Impact Through Islamic Finance”.

“Islamic finance is indeed growing strongly, but we believe the growth could be further boosted if it was able to offer Shariah and ESG-compliant funds globally. The study shows that potential demand for such funds would rise from both traditional and non-Muslim investors,” Maybank Islamic CEO Datuk Mohamed Rafique Merican said in a statement.

IslamicMarkets.com CEO Shakeeb Saqlain (picture) added, “There is widespread agreement that the current Islamic finance market is not meeting the potential demand for ESG and Shariah-compliant funds even though there is an expectation of a growing number of funds being launched. The issue remains, as it has for decades now, the lack of a global regulatory and legal framework.”

It found that 73% of professionals working for organisations including asset managers, banks, insurers, fintechs and consultancies believe demand for ESG investment strategies is not being met by the Islamic finance market, they believe that if investment products were certified as both Shariah and ESG-compliant, more non-Muslims would buy them given the strong demand for ESG in Europe.

About 72% agree that the introduction of a global standard for ESG and Shariah would boost demand.

On the plus side, the study found that 36% expect dramatic growth, while 49% expect a slight increase in the number of fund launches.

However, 55% believe the launch of a global standard is two years or more away, and just 52% expect good progress, or even dramatic progress, in the next two years on the adoption of a unified global legal and regulatory framework for Islamic finance.